2. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 3.Which of the following best meets the criteria of a public good? A.A phone card. B.An airline ticket. C.National defense. D.A college education. E.A restaurant.

3. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 3.Which of the following best meets the criteria of a public good? A.A phone card. B.An airline ticket. C.National defense. D.A college education. E.A restaurant. Public Good: Must meet the criterion of shared consumption and nonexclusion.

4. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 6. In a market economy, the distribution of income is: A. equitable because people who are willing to work earn income. B. primarily determined by the prices of scarce resources people own. C. primarily determined by the government through its power to tax. D. distributed on the basis of need. E. always more equal than in a command economy.

5. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 6. In a market economy, the distribution of income is: A. equitable because people who are willing to work earn income. B. primarily determined by the prices of scarce resources people own. C. primarily determined by the government through its power to tax. D. distributed on the basis of need. E. always more equal than in a command economy. PURE MARKET ECONOMY: An economy in which markets answer all allocation decisions and answers all three questions of allocation. There is no government. Markets do it all. This is a theoretical ideal or extreme that does not exist in the real world. As a theoretical ideal, though, it does provide a benchmark that can be used for comparison with real world economic systems.

6. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 17. Which of the following statements would advocates of public-choice theory agree? I.Government leaders usually consider the public interest over special interests. II.Because of the median-voter hypothesis, there is not much difference in the views of candidates running for office. III.Most voters are well informed about candidates for office A.I only B.II only C.III only D.II and III only E.I, II, and III

7. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 17. Which of the following statements would advocates of public-choice theory agree? I.Government leaders usually consider the public interest over special interests. II.Because of the median-voter hypothesis, there is not much difference in the views of candidates running for office. III.Most voters are well informed about candidates for office A.I only B.II only C.III only D.II and III only E.I, II, and III Public choice theory tries to look at the economic analysis of human behavior as individuals and transfers this analysis to political science. What public choice theory looks at are cases where that individual interest leads to decisions and the allocation of resources which may not be the most efficient allocation. This is called 'government failure'.

8. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 18. Government may attempt to reduce income inequality by doing which of the following? I.Provide transfer payments to the poor II.Directly influence market prices, such as establishing a minimum wage III.Tax high income earners at a higher rate than low-income earners A.I only B.II only C.III only D.I and II only E.I, II, and III

9. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 18. Government may attempt to reduce income inequality by doing which of the following? I.Provide transfer payments to the poor II.Directly influence market prices, such as establishing a minimum wage III.Tax high income earners at a higher rate than low-income earners A.I only B.II only C.III only D.I and II only E.I, II, and III

10. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 25. If the government increases the amount of government insurance on bank deposits, this action would A.Increase the probability of adverse selection B.Lessen the probability of adverse selection C.Increase the probability of a moral hazard problem D.Lessen the probability of a moral hazard problem E.Eliminate the probability of adverse selection or moral hazard

11. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 25. If the government increases the amount of government insurance on bank deposits, this action would A.Increase the probability of adverse selection B.Lessen the probability of adverse selection C.Increase the probability of a moral hazard problem D.Lessen the probability of a moral hazard problem E.Eliminate the probability of adverse selection or moral hazard

12. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 2. Use a supply and demand graph to illustrate a negative externality. Explain your graph. Short

13. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 2. Use a supply and demand graph to illustrate a negative externality. Explain your graph. Short The correct output for society is Q 1. However, because of externalities, the actual output is Q and the price is P. Taxing the emissions would decrease supply from S to S 1. This would increase the price and reduce the output to the level where all externalities would be internalized. Without considering the negative externalities, the price is too low and the output is too high for an efficient allocation of resources.

14. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 3. Use a supply and demand graph to illustrate a positive externality. Explain your graph.

15. Mr. Weiss APE/Honors Economics – Test Study Questions – Micro – Unit 5 3. Use a supply and demand graph to illustrate a positive externality. Explain your graph. Because the positive externalities are not considered, the demand based on buyer benefits is only D. If societal benefits were considered, the demand would be greater, shifting to D 1. Without considering external benefits, both price and output are too low for an efficient allocation of resources.

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